Industry | 2009.11.12
British Airways agrees to tie the knot with Iberia
• £4bn merger with Iberia forced by heavy losses
• Deal will open up new routes for passengers
British Airways alarmed passengers a decade ago by removing the Union Jack from its tailfins. But they now have the prospect of the Spanish flag flying alongside the national airline after BA agreed a £3.96bn merger with rival Iberia today.
The agreement brings to an end 90 years of national independence for the carrier but there is some consolation for patriotic jet-setters. Willie Walsh, BA\'s Irish chief executive and proposed boss of the enlarged business, said the BA brand will stay and the new company will be headquartered in London. "The structure of this is to create a company that controls the strategic development of the two airlines. But we will continue to have two individual airlines," said Walsh.
BA has won several battles over the structure of the new business, with the shareholder split weighted 56% to 44% in the British carrier\'s favour. Iberia\'s chairman, Antonio Vazquez, will head the board of the new business when the deal is completed late next year.
Experts said the merger confirmed that the days of the national flag carrier are over as BA\'s ownership status catches up with the harsh commercial realities of modern air travel. One former BA manager said airlines had to move on from their origins as emissaries for nation states.
"If any industry is a global industry, it is aviation. We have to get beyond the idea of flag carriers and having an airline just to represent a country," said John Strickland, now an industry consultant.
In BA\'s heyday in the 1980s, it traded under the slogan "the world\'s favourite airline" and carried more international passengers than any other carrier. But its reputation for service and hassle-free travel has endured a bumpy ride since. The tagline was dropped in 1999 amid increased competition and the emergence of the low-cost carriers who now dominate the short-haul market.
Iberia and BA have suffered in a severe recession that has pushed them into heavy losses. Last week, BA posted a record first-half loss of £292m, including trading during the usually profitable summer months, while Iberia recorded a net €72.8m (£65m) loss in the three months to the end of June.
BA\'s financial troubles can still scupper the deal, however. According to the memorandum of understanding signed by both companies today, Iberia can walk away from the merger if the trustees of BA\'s troubled pension fund, which has an estimated deficit of £3bn, impose crippling conditions on the deal.
BA has struggled to recover from the economic fallout of the September 11 attacks, and more recently the botched launch of Heathrow\'s Terminal 5 was a PR disaster. The source of its current woes, underlined by a record £401m loss last year, is the disappearance since the banking crisis of the business class passengers who underpin its profits.
The combined airline will offer a wider choice of routes. Strickland said BA passengers will find it easier to travel to South America, with the 2014 World Cup and 2016 Olympics set to make Brazil and Rio de Janeiro major attractions.
BA and Iberia carry 61.5 million passengers a year between them, with 419 aircraft, revenues of around £13.4bn and a workforce of 60,282. The airline will be the world\'s sixth largest by passenger numbers and Europe\'s third largest by revenue.
Flag-waving air passengers were reassured, however, that BA\'s identity will not be diluted beyond recognition. Air France and the Dutch national carrier, KLM, created Europe\'s largest airline after merging in 2004, but have retained separate identities.
The blurring of national boundaries will not stop at Iberia if Walsh gets his way, however. BA is proposing a tie-up with American Airlines that will allow them to collude over fares and scheduling – something that is illegal currently. "It has always been our position that this step with Iberia is just a first step," said Walsh.
For more information, please visit
http://www.guardian.co.uk/business/2009/nov/12/british-airways-iberia-merger
